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Strategic Management Plan [Target year: Fiscal 2015 (ending March 31, 2016)]

Formulation of Fusion 15 Latter-Half Three-Year Plan

Succeeding in the Paradigm Shift To Become a Truly Global and Excellent Company

26 November 2013

Daikin Industries, Ltd. formulated the latter-half three year plan (from FY2013 to 2015) for the strategic management plan Fusion 15 with the target fiscal year of 2015.
This year marks the mid-year of Fusion 15, which was initiated in FY2011. Daikin has maintained increased sales and profit against the backdrop of a changing world economy and expects business performance to exceed the targets for FY2013 set forth in the initial plan. The latter-half plan for Fusion 15 now formulated incorporates quantitative targets set forth for FY2015 and specific strategies to realize these targets based on the results achieved in the first half of the plan as well as changes in the business environment.
Looking to FY2015, Daikin aims to become a truly global and excellent company based on the newly established business growth foundation.

1.Quantitative targets for the latter-half plan

  FY2010 results FY2013 initial plan FY2013 forecast
(Announced on Nov.6)
FY2015 goals
(Announced here)
Net sales ¥1,160.3 billion ¥1,600.0 billion ¥1,770.0 billion ¥2,050.0 billion
Operation income (%) ¥75.5 billion
(6.5%)
¥130.0 billion
(8.1%)
¥140.0 billion
(7.9%)
¥190.0 billion
(9.3%)

2.Directions of the latter-half plan

While maintaining the Group-wide core strategies set forth at the outset of Fusion 15 as the base, the latter-half plan incorporates growth themes factoring in FY2015 and beyond, aiming to reinforce earnings capacity and the corporate constitution.

1) Accelerate core strategies leveraging environmental changes

  • Launch products for emerging and high-volume markets in advanced countries and regions (Japan, China, Europe, etc.)
  • Establish distribution networks in regions where air conditioning demand is growing (Russia, Middle East, Latin America, etc.)
  • Accelerate sales expansion of commercial-use air conditioning equipment
    (VRV, Applied products) in Asia
  • Expand revenue in cyclical business (from installation to controls, service, and maintenance) including in Daikin's core equipment strengths
  • Pursue energy-saving performance that leads the industry, better air quality environments (purification, humidification/dehumidification, ventilation), expand the number of products compatible with energy diversification, etc.

2) Reform corporate constitution to reinforce profitability

  • Improve earnings capacity and maximize FCF through Group-wide variable- and fixed-cost reductions
  • Streamline entire SCM process by learning from Goodman, etc.

3) Further expand existing businesses and current regions of business

  • Europe: Expand sales outpacing economic recovery in key countries (France, Italy, etc.) and expand business in neighboring emerging countries
  • Revive Chemicals business to a highly profitable constitution through sales expansion incorporating growing markets such as the automobile industry, development of new products including hybrid materials, expansion of high value-added products, etc.

<Reference 1>

Achievements in the first half of Fusion 15

1) Progress on core strategies

  • 1) Full entry into emerging and high-volume markets
    • Tripled sales scale in emerging markets (¥55B in 2010 ⇒ ¥155B in 2013 plan)
    • Established sales companies in Indonesia, Chile, Peru, Columbia, etc.
    • Strengthened profitability: Achieved consolidated profitability in emerging markets as a whole and in the business in India
  • 2) Expansion of solutions business meeting individual customer needs
    • Augmented air conditioning equipment portfolio for large buildings and factories (3,000-ton centrifugal chillers, etc.)
    • Developed the energy-saving solutions business in Japan (BEMS aggregator, etc.)
  • 3) Expansion of environment-related innovation business
    • Successively launched industry-leading energy-saving products in the market
    • UruSara 7 (awarded the Energy Conservation Grand Prize), Five Star ZEAS, Ve-up IV, module chillers
    • Actively developed inverter products in emerging countries where environmental regulations are tightening
    • Put new R32 refrigerant into practical use for the first time in the world
  • 4) Acceleration of growth through alliances, partnerships, and M&A
    • Made strong inroads into North American market through acquisition of Goodman
    • Made strong inroads into Turkish and Central Asian markets through acquisition of Airfel

2) Constitutional Reinforcement

  • 1) Profitability improvement through adding high value and strengthened cost competitiveness
    • Japanese AC: Successively launched differentiated products, established flexible production system able to handle exchange rate fluctuations
    • Generated volume advantages with full operation of Suzhou factory
      (1.5M room air conditioners)
    • Promoted global centralized purchasing by incorporating Goodman's know-how
  • 2) Establishment of robust sales network unaffected by external environment
    • China: Expanded sales network to China's interior markets, reinforced retail sales closer to customers
    • India: Developed SBUs that meet various customer needs and optimized dealers in each region
  • 3) Establishment of stronger foundation in global air conditioning market
    • North America: Significantly expanded ducted and ductless product sales utilizing Goodman's distribution network (197 locations, 60,000 dealers)
    • Expanded global development bases (Europe, China, etc.)
    • Expanded production bases(Turkey, Brazil, Mexico, United States etc.)
  • 4) Continuous reinforcement of profitability aimed at lean management constitution
    • Group-wide fixed cost ratio: 30% in 2010 ⇒ 28% in 2013 ⇒ 26% in 2015

<Reference 2>

11 Group-wide Core Strategy Themes

  • 1) 4 New Growth Strategy Themes: Innovation that incorporates the changes of the era as growth
    • (1) Full entry into emerging and high-volume markets
    • (2) Develop a solutions business that meets customer needs
    • (3) Expand environment-related innovation business
    • (4) Accelerate growth through alliances, partnerships, and M&A
  • 2) 4 Management Constitution Reform Themes: Sophistication of the management platform to succeed in the new era
    • (1) Innovate product development, production, procurement, and quality capabilities
    • (2) Strengthen global marketing function
    • (3) Comprehensively develop capacity to utilize IT
    • (4) Fundamentally reinforce profitability
  • 3) 3 Themes to Enhance HR Capabilities Based on People-Centered Management
    • (1) Implement and sophisticate People-Centered Management,
    • (2) Accelerate development of measures to secure and develop quality HR t
    • (3) Speed up management localization and promote communication between Group companies
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